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UK - Treasury Select Committee grills LBO representatives

Sarah
20 June 2007

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Four representatives from the world's biggest buyout firms answered to a group of MPs at today's Treasury Select Committee. Whatever they felt privately about being made to account for the industry, publicly, the hearing was welcomed. "It's very important for us to get on the front foot and explain the benefits of the industry," commented 3i's Philip Yea. The panel were unflappable on the issue of employment, trade unionist's main gripe. The dead silence which followed a question about how much tax they actually pay as investment directors, taking into account different vehicles and tax domiciles, however, was telling. The debate heated up when the deal-doers were forced to defend cov-lite loans. "Everyone else I have spoken to believes cov-lite loans to be a bad thing apart from you four," remarked one MP.

Much of the time was spent discussing the laying off of staff and closing down of factories. Not exactly shocking stuff that trade unions rate employment numbers above growth and efficiency. Trade union leaders angrily questioned the validity of figures showing that private equity creates more jobs than it destroys. The representatives from Carlyle, KKR, Permira and 3i claimed that overall employment at their portfolio companies had risen. However, they quite rightly put the emphasis on productivity rather than employement. "We are talking about growth," Dominic Murphy from KKR insisted.

While any sort of debate is healthy, it would have been healthier if the different parts of the industry - early-stage investors as well as mid-market and smaller players had been involved. There is far too much attention given to enormous deals of which, as yet, there have been very few in the UK. Boots and its headline grabbing £11.1bn size hides the reality that in 2006, the largest buyout in the UK was £2.2bn.